What is IR35?
IR35 is a tax legislation rule which was brought in by the government in 1999 and came into effect as of April 2000.
IR35 was introduced to prevent people from working under a ‘self-employed’ mask when in fact they are working solely for one company. HMRC take the view that the individual should be treated as an employee in this instance. Contractors who are caught out by IR35 legislation will pay more tax and will have their after-tax pay reduced by up to 25%.
Why was IR35 introduced?
Before IR35 was introduced many self-employed contractors, such as IT and engineering contractors, were working as a limited company for a single client in order to avoid large tax and national insurance bills.
This new legislation aims to prevent this, as depending on the terms of the contract, the contractor may need to become an employee of their client and pay tax as an employed person. HMRC commented that a large number of contractors in the UK were ‘disguised employees’ and that they should be on their client’s payroll; these could all impact your ability to secure a mortgage if you are inside ir35 as a contractor.
How does IR35 affect you as a contractor?
Every contractor in the UK, no matter what industry you work in, needs to consider the effects of IR35 on their business. Contractors who fall under the IR35 legislation rules will be subject to what is known as schedule E taxation but can still claim certain expenses.
This may mean it isn’t straight forward for high street lenders to help you get a mortgage, something CMME can help with.
Getting a mortgage as an IR35 Contractor
As with any mortgage application there are many different criteria points to overcome to achieve your mortgage goals. IR35 creates further complexities that some high street banks are not equipped to deal with, particularly when helping many umbrella or PSC employees.
As with any mortgage application, it is always suggested to take a full evaluation of your finances before applying.
How CMME can help:
- We take into consideration your unique situation and paint a whole picture to lenders
- Experience with complex cases and our advisors are specialists in the field and dedicated to serving independent professionals
- Search for the best in-market deal available to you and can secure long term mortgage rates
You can take a look at how much you could borrow using our calculator below
How can I check if I fall under IR35?
First of all, you need to ascertain if you are classed as self-employed or employed under HMRC rules. The guidelines from HMRC are quite unclear and there are no specifics laid out, so it is important that you seek advice from an expert in the area, such as a tax adviser, if you are unsure. To avoid being caught by the IR35 rules, it is essential that your contract with your end-client is ‘IR35 friendly’.
Ensure that contract deadlines or end dates are clearly specified in your contract. This does not mean that the contract cannot be reviewed. However, if you appear to be working on a permanent basis for a single client, yet you are claiming to be ‘self-employed’, HMRC may view you as in-breach of IR35 guidelines.